CIT bankruptcy could crimp Louisiana expansion

Economy, Business and FinanceFinanceBusinessBankruptcyFinancially Distressed CompaniesCompanies and CorporationsSmall Businesses

When Rene Acremont and his wife, Samantha,opened a Tropical Smoothie Cafe franchise in Slidell in September,the process was seamless.

The couple applied for and shortly thereafter received a SmallBusiness Administration loan for the project and any questions theyhad along the way were promptly addressed by the SBA approvedlender who backed their loan, Acremont said.

But as Acremont prepares to expand his business to Mandevilleand perhaps Metairie in the next year, he worries that he won'texperience the same efficiency and wonders if he'll even be able tosecure funds to make the project happen.

Acremont's original loan was backed by the commercial lender CITGroup, which until this year was the SBA's largest underwriter andwhich filed for bankruptcy protection earlier this month.

"We're planning on expanding," Acremont said. "Will CIT be apart of our expansion?"

It's a question as many as 1 million small businesses with loansthrough the bankrupt Compton are likely asking, as CIT tries toreduce its total debt by about $10 billion. The company plans tocontinue lending throughout its bankruptcy, but with its long-termprospects uncertain some small- and medium-size companies, likeAcremont's, could begin looking for alternative financing options.

"I think the biggest thing is going to be: 'Is this going toput our expansion on hold?"' Acremont said. "Is this going tostop us from expanding as soon as we could?"

Already, CIT has already begun cutting back on its lendingthrough the SBA. In fiscal year 2009, the company backed 142 SBAloans worth $105 million, compared with 2008 when CIT supported1,195 loans for $575 million.

In Louisiana, the company made two loans in 2009, compared withnine in 2008.

SBA spokeswoman Hayley Matz said the SBA has increased thenumber of partner lenders by 15 percent to compensate for thedecline in CIT backed loans.

"Through our efforts in the Recovery Act, we've really beenencouraging more of our partners to participate in the SBAprogram," Matz said.

However, the additions do not completely make up for the dollaramount lost through CIT's reduction, Matz said.

Carmen Sunda, director of the Louisiana Small BusinessDevelopment Center, said she didn't expect to see a run up inbusinesses requesting assistance in the wake of the CIT bankruptcybecause most of the businesses the development center helpsreceived loans from local banks and microlenders.

"Most of the folks we deal with, if they're going to do loanswould go local," Sunda said. "We exhaust all local options beforewe go out of town."

But the general state of the economy, she said, has sentsmall-business owners into the center looking for relief.

"We've had, over the last couple months, a real increase inbusinesses looking for alternative financing," Sunda said, addingthat she wasn't sure if that increase was related to CIT's widelyanticipated bankruptcy or just a result of continued weakness inthe credit market.

Despite the bankruptcy, there are still lending optionsavailable to strong small businesses, said Louis Greenblatt,president of Evergreen Working Capital.

"If there is any slack created by their problems, I would saytheir competitors would pick that up," said Greenblatt, whose NewOrleans company provides working capital to rapidly growing smallbusinesses that can't get enough financing from banks. "Itcertainly could create an opportunity for us and other companieslike us."

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